This paper is intended to analyze factors contributing to the underdevelopment of the Chonnam Province manufacturing industries with particular emphasis on the financial aspect. The per capita income in the Chonnam Province was the lowest (only 44.7% of that of Seoul) in Korea in 1966. It resulted from the underdevelopment of manufacturing industries in the Chonnam Province. Taking the case of Chonnam as a typical example of the local manufacturing industries, an analysis of its production aspect proves that 99% of it consists of the small-medium establishments, with such accompanying characteristics as lower level of productivity, wage rate, capital formation, profit rate and investment rate than the average value in Korea. Such characteristics result ultimately from the scarcity of the tangible fixed assets. (Those in Chonnam amount only to 5. 65% of those in Korea in 1969.) Though it is necessary to increase substantially the advance credit in order to overcome such a situation, the amount of loan to Chonnam shows a decreasing tendency relative to the entire nation (the ratio in 1970 is only 4%). This results in raising the level of dependence upon the private loan of higher interest rate and therefore increasing the interest burden in the manufacturing enterprises. The criterion for the selection of investment as the distribution criterion of fund is determined by the Rasmussen method on I. O. analysis. To absorb the surplus labor, to make efficient use of the scarce capital and to improve the industrial structure, the labor intensive business in the heavy industrial sector must be the object of the selective development policy, but the authorities have misled the direction of that policy. $quot;S$quot; company-a large scale firm-in Kwang-ju was put to microanalysis as the representative company in the Chonnam Province. The most efficient production program is planned by Linear Programming, making use of imported raw materials in $quot;S$quot; company. The rationalization of production or modernization of management enables $quot;S$quot; company to increase profit-the latent force of capital formation. The efficient use of restricted and scarce fund is attained by the efficient production program and the rational demand-supply program of raw material. Because of insufficient fund, the rationalization of producation is nut yet realized. Therefore, the profit rate and the capital formation rate are net only very low but also liabilities and net worth. Thus $quot;S$quot; company shows in substance the same qualities as the small-medium business enterprise. The central concern of Korean economy in 1970`s must focus all the efforts an the qualitative growth of local enterprises by making efficient use of the scarce fund.